UK government moves forward on financial markets bill for potential regulation of crypto

June 19, 2023 Coin Telegraph

Following a third reading in the House of Lords, the Financial Services and Markets Bill will return to the lower house of the U.K. Parliament for members to consider any changes.

Lawmakers in the upper house of the Parliament of the United Kingdom are moving forward with legislation that could help support the adoption of crypto in the country.

In a meeting of the U.K. Parliament’s House of Lords on June 19, many members advocated for the passage of the Financial Services and Markets Bill — legislation aimed at strengthening the country’s financial services industry. The bill went through a third reading in the House of Lords, one of the final stages in passage before considering any additional amendments and being signed into law.

According to lawmakers, the June 19 proceedings were part of a plan to “tidy up” the bill in an effort “to ensure it is effectual.” It will go back to the lower house of the U.K. Parliament, the House of Commons, where members can consider any changes proposed by the upper house.

“This bill delivers the outcomes of the future regulatory framework review, giving the regulators significant new rulemaking responsibilities, whilst balancing that additional responsibility with clear accountability, appropriate democratic input, and transparent oversight,” said Baroness Joanna Penn.

#HouseOfLords conducts ‘tidy up’ of the #FinancialServicesBill from 3.15pm before it is returned to @HouseOfCommons to consider Lords changes.

Find out more https://t.co/kZYuE22bId

 Watch online https://t.co/MXe7B0XhMX pic.twitter.com/hPec0CXTm1
— House of Lords (@UKHouseofLords) June 19, 2023

First introduced to the U.K. Parliament in July 2022, the Financial Services and Markets Bill was aimed at ensuring the country maintained its place in the financial world following Brexit. The original version of the bill included granting authority on digital asset regulation, while the most recent amendments from the House of Lords seemingly did not include any changes relevant to the crypto industry.

Regulation of cryptocurrencies globally seems to be impacting where firms choose to do business. United States authorities have cracked down on both Coinbase and Binance, leading to the two exchanges becoming entangled in legal filings amid their ongoing business. Some companies, including Bybit, have announced their departure from Canada as well, specifically citing regulatory developments.

Magazine: US enforcement agencies are turning up the heat on crypto-related crime

UK to get ‘early or priority access’ to AI models from Google and OpenAI

June 12, 2023 Coin Telegraph

It’s unclear at this time what access the U.K. will receive, but the reported commitment could be the first of its kind.

British Prime Minister Rishi Sunak recently announced that Google DeepMind, OpenAI, and Anthropic — three tech outfits widely considered the global industry leaders in generative AI technologies — have agreed to provide the United Kingdom with early access to their AI models.

Sunak made the announcement during a speech opening London Tech Week, an event described by organizers as “a global celebration of tech, uniting the most innovative thinkers and talent of tomorrow in a week-long festival.”

He made the comment while explaining a three-part plan to ensure AI systems in the U.K. are deployed in a safe and secure manner. The first step, per a transcript of the speech, is to perform cutting-edge safety research:

“We’re working with the frontier labs - Google DeepMind, OpenAI and Anthropic. And I’m pleased to announce they’ve committed to give early or priority access to models for research and safety purposes to help build better evaluations and help us better understand the opportunities and risks of these systems.”

The prime minister went on to explain that the second step of the U.K.’s plan is the recognition that AI, as a technology, doesn’t “respect traditional national borders,” thus necessitating the formation of a global task force.

Finally, the third step, per Sunak, is to invest in both AI and quantum to “seize the extraordinary potential of AI to improve people’s lives.” He cited recent investments in the amounts of $1.125 billion and $2.75 billion, for compute and quantum technologies, respectively, as steps the U.K. had already taken towards accomplishing this goal.

It remains unclear at this time exactly what form of “early or priority” access the U.K. government will obtain or when such access will be afforded.

Google DeepMind, OpenAI, and Anthropic have historically offered betas and limited preview versions of their large language models (such as Google’s Bard, OpenAI’s ChatGPT, and Anthropic’s Claude). All three companies have also invested in both internal testing with company scientists and external testing with contracted experts.

The prime minister didn’t make it clear whether the U.K. would obtain earlier access to production models than the general public or contractors or if the commitment was simply to offer access to the government as well as other priority researchers.

These comments come at an active time for the U.K.’s regulatory efforts. Not only is parliament racing to come up with comprehensive protections for citizens relative to the recent generative AI boom, but it's also facing increasing pressure to regulate cryptocurrency, blockchain, and Web3 technologies.

AI could threaten humanity in 2 years, warns UK AI task force adviser

June 6, 2023 Coin Telegraph

The U.K. prime minister’s AI task force adviser said large AI models would need regulation and control in the next two years to curb major existential risks.

The artificial intelligence (AI) task force adviser to the prime minister of the United Kingdom said humans have roughly two years to control and regulate AI before it becomes too powerful.

In an interview with a local U.K. media outlet, Matt Clifford, who also serves as the chair of the government’s Advanced Research and Invention Agency (ARIA), stressed that current systems are getting “more and more capable at an ever-increasing rate.”

He continued to say that if officials don’t consider safety and regulations now, the systems will become “very powerful” in two years.

“We’ve got two years to get in place a framework that makes both controlling and regulating these very large models much more possible than it is today.”

Clifford warned that there are “a lot of different types of risks” when it comes to AI, both in the near term and long term, which he called “pretty scary.”

The interview came following a recent open letter published by the Center for AI Safety, signed by 350 AI experts, including OpenAI CEO Sam Altman, that said AI should be treated as an existential threat similar to that posed by nuclear weapons and pandemics.

“They’re talking about what happens once we effectively create a new species, sort of an intelligence that’s greater than humans.”

The AI task force adviser said that these threats posed by AI could be “very dangerous” and could “kill many humans, not all humans, simply from where we’d expect models to be in two years’ time.”

According to Clifford, regulators and developers’ primary focus should be understanding how to control the models and then implementing regulations on a global scale.

For now, he said his greatest fear is the lack of understanding of why AI models behave the way they do.

“The people who are building the most capable systems freely admit that they don’t understand exactly how [AI systems] exhibit the behaviors that they do.”

Clifford highlighted that many of the leaders of organizations building AI also agree that powerful AI models must undergo some kind of audit and evaluation process before deployment.

Currently, regulators worldwide are scrambling to understand the technology and its ramifications, while trying to create regulations that protect users and still allow for innovation.

On June 5, officials in the European Union went so far as to suggest mandating all AI-generated content should be labeled as such to prevent disinformation.

In the U.K., a front-bench member of the opposition Labour Party echoed the sentiments mentioned in the Center for AI Safety’s letter, saying technology should be regulated like medicine and nuclear power.

Magazine: AI Eye: 25K traders bet on ChatGPT’s stock picks, AI sucks at dice throws, and more

Binance looks to the UK for regulation amid US crypto crackdown

May 11, 2023 Coin Telegraph

Binance

Binance seeks regulation in the U.K. amid a U.S. crackdown on cryptocurrencies as its chief strategy officer acknowledges the challenging business environment in the United States.

Crypto exchange Binance has acknowledged that a crackdown on cryptocurrencies has made conducting business in the United States challenging. It is now looking to be regulated in the United Kingdom.

During the Financial Times’ Crypto and Digital Assets Summit, Patrick Hillmann, Binance’s chief strategy officer, said that the past six months have been quite confusing in the United States. He added that the recent actions taken by the U.S. Securities and Exchange Commission (SEC) against rival exchange Coinbase for allegedly violating securities laws are an indication of how “the U.S. right now is in this strange place.“

While Hillmann acknowledged the “very confusing” environment in the U.S., he expressed the company’s commitment to doing “everything we possibly can” to be regulated in the United Kingdom.

This is a change of tone from his earlier statement that the current crackdown on crypto had made it difficult to do business in the United States. Binance has previously clashed with U.K. regulators over its failure to provide essential information about its business activity, which led regulators to suggest the exchange was unregulatable.

In 2021, the Financial Conduct Authority ordered the company to stop all regulated activities in Britain. Other groups have claimed that U.K. officials have been overly wary of fintech and crypto companies.

A representative from Binance stated that the company adheres to regulations concerning money laundering and terrorism financing in the United Kingdom. They explained that Binance has a compliance program, which utilizes Anti-Money Laundering, global sanctions principles, and tools employed by financial institutions to detect and address any suspicious activity.

According to Binance, the crypto exchange can secure approvals and registration through the compliance program in various jurisdictions across the globe, including New Zealand, Dubai, France, Italy and Spain.

Binance has been the target of U.S. regulators clamping down on perceived illicit activity this year. In March, the Commodity Futures Trading Commission (CFTC) brought a lawsuit against Binance, alleging it had been operating illegally in the country and had broken the law by extensively soliciting U.S. customers. At the time, Binance called the CFTC complaint “unexpected and disappointing.”

Magazine: US and China try to crush Binance, SBF’s $40M bribe claim: Asia Express

UK reviews AI development: It can ‘drive substantial economic growth’

May 4, 2023 Coin Telegraph

The U.K. Competition and Markets Authority said it would examine AI’s development, deployment and social impact.

The United Kingdom’s Competition and Markets Authority (CMA) has turned its attention to artificial intelligence (AI) after announcing an examination of the impact of the technology on consumers and the economy.

On May 4, the regulator said it will be looking at the development and deployment of foundation models - applications like OpenAI’s ChatGPT- against key principles. Those include safety, transparency, fairness and accountability, among others.

Our goal is to help this new, rapidly scaling technology develop in ways that ensure open, competitive markets and effective consumer protection.

Read more: https://t.co/wIC25o6qsN
— Competition & Markets Authority (@CMAgovUK) May 4, 2023

Sarah Cardell, the chief executive of the CMA, commented that since AI tools “burst” into the public sphere, regulators have had their eye on it.

“It’s a technology developing at speed and has the potential to transform the way businesses compete as well as drive substantial economic growth."

She continued by deeming it “crucial” that businesses and consumers in the U.K. have access to the potential benefits of AI technologies, while simultaneously being shielded from fake information. AI-generated fakes have already begun populating the web resulting in lawsuits.

The initial review will examine the competitive market for AI foundation models and their usage. Regulators plan to monitor how they can expand and present opportunities, along with risks to competition and consumers.

The CMA says its goal is to help the technology develop in ways that “ensure open, competitive markets and effective consumer protection."

Additionally, this review is intended to produce “guiding principles” for the protection of consumers while supporting healthy competition as such technologies develop. The report of findings is scheduled to be published in September 2023.

This announcement follows the publication of a white paper on AI from the U.K. government in March 2023.

On April 25, the U.K. prime minister and technology secretary revealed funding of 100 million British pounds ($124.8 million) to support a task force aimed at accelerating the country’s AI readiness.

Magazine: Crypto regulation: Does SEC Chair Gary Gensler have the final say?

UK government targets fraudsters with new ban on cold calls for crypto

May 3, 2023 Coin Telegraph

Coin Telegraph

The U.K. government plans to introduce laws to reimburse victims of authorized crypto fraud and work with Ofcom to prevent phone number “spoofing.“

The United Kingdom is set to ban cold calls selling financial products, including insurance and cryptocurrencies, to crack down on fraud. It is estimated that fraud costs the country approximately £7 billion ($8.7 billion) annually.

The U.K. government announced its new fraud strategy, pledging 400 new jobs to update its approach to intelligence-led policing. The government will work alongside the telecoms regulator, the Office of Communications, commonly known as Ofcom, to use new technology to counter phone number “spoofing,” which would prevent fraudsters from impersonating legitimate U.K. phone numbers.

According to a report, wire fraud is now the most prevalent crime in the U.K., with 1 in 15 people falling victim to it. To ensure more victims of fraud get their money back, the government aims to introduce laws that require financial institutions to reimburse victims of authorized fraud.

A report published on Jan. 29 by media outlets, the Bureau of Investigative Journalism and the Observer, shows that organized crime syndicates are utilizing the U.K. as their operational base owing to the region’s “lenient regulations.“ Registering a company in the U.K. costs as little as 12 British pounds ($14.85). It requires no form of identification, making it easy for fraudulent companies to register there and gain sham credibility.

The U.K. government has been trying to clamp down on cryptocurrency companies operating in the region. The U.K. Financial Conduct Authority (FCA) mandated that all companies engaged in crypto asset activity register with it per the existing Financial Services and Markets Act rules for the digital assets market.

However, the FCA has adopted a strict approach to granting approvals, leading to several crypto-related businesses operating as unregistered entities. The regulator appears to be striving to balance providing a secure environment for investors and promoting innovation in the industry.

U.K. Prime Minister Rishi Sunak reportedly said in a statement that scammers “ruin lives in seconds, deceiving people in the most despicable ways in order to line their pockets.“ He pledged to fight these fraudsters wherever they attempt to hide. The government also promised to put an end to methods commonly used by scammers to reach thousands of people at once, such as “SIM farms.“ The use of mass-texting services will also be reviewed to prevent these technologies from falling into the hands of criminals.

Magazine: 4 clever crypto scams to beware — Dubai OTC trader Amin Rad

Industry heavyweights respond to UK’s crypto asset regulatory framework proposal

May 1, 2023 Coin Telegraph

Coin Telegraph

HM Treasury was directed to spot problems that may need refinement, but the basic principles of its approach were heartily welcomed.

The deadline has come for comments on a consultation paper and call for evidence released by the United Kingdom’s HM Treasury on a proposed crypto asset regulatory framework. The long-awaited paper, published in February, drew detailed responses from a variety of cryptocurrency industry players.

Blockchain provider Polygon Labs, venture capitalists Andreessen Horowitz (a16z), the Association for Financial Markets in Europe (AFME) and the Digital Pound Foundation (DPF) released their responses on May 1 to the call for comments. Among these diverse voices, some common issues were raised.

The Treasury’s call for “same risk, same regulatory outcome” was well met, although there was no uniform understanding of what that entailed, aside from its basis in the Financial Services and Markets Act of 2000. California-based a16z pointed out weaknesses in the United States Securities and Exchange Commission’s dependence on the Howey test as the firm assessed the U.K. proposal. In its response, a16z wrote:

“It is encouraging that the Treasury’s interpretation of this principle recognises that it does not mean it will be appropriate to apply exactly the same form of regulation in all cases to achieve the same regulatory outcome.”

This tied into the proposal’s emphasis on regulating activities, rather than assets themselves. The basic differences between centralized finance (CeFi) and decentralized finance (DeFi) were central to this discussion. Polygon wrote:

“The source of risk in DeFi systems is significantly different than that in centralised systems, like CeFi or the traditional financial system. To this end, it may be more accurate to update: ‘same risk, same regulatory outcome’ to ‘different source of risk, same regulatory outcome.’"

The proposed framework treated fiat-backed stablecoins and algorithmic stablecoins differently, classifying algorithmic stablecoins as an “unbacked cryptoasset.” Polygon particularly favored the activity-based regulatory approach in this case.

The AFME, which worked with consulting firm Clifford Chance on its response, noted the importance of a global taxonomy of crypto assets for effective international regulation and the "same activities" approach to exclude blockchain-based representations of value such as loyalty and rewards programs.

1/ @a16zcrypto submitted our response to the UK @HMTreasury "Future Financial Services Regulatory Regime for Cryptoassets" consultation. We enthusiastically embrace the UK's approach for a "proportionate and focused, agile and flexible," regime. . . https://t.co/rT85Xfd8so
— Brian Quintenz (@BrianQuintenz) May 1, 2023

The AFME also identified the territorial scope of the proposed crypto regulations, which are written to apply to companies that provide services to U.K. nationals. That is a broader scope than regulations concerning traditional assets have, it noted.

The DPF perceived possible deviations from the “same risk, same regulatory outcome” principle in the handling of several forms of crypto assets, and it commented on them in detail. The classification of stablecoins was one of the points it thought needed clarification in this regard.

The U.K. government will respond to the collected responses it received to its paper and engage in further consultations on specific rules as its next step, if they are “taken forward.”

Magazine: Crypto regulation: Does SEC chair Gary Gensler have the final say?

UK pledges nearly $125M to create ‘safe AI’ taskforce

April 26, 2023 Coin Telegraph

UK pledges nearly 5M to create ‘safe AI’ taskforce

The British government has pledged 100 million British pounds ($124.8 million) in funding to support a task force for the development of “safe AI.”

The United Kingdom is buckling down on its efforts to ramp up the country’s technology sector. Officials released an announcement for funding of a new artificial intelligence (AI) task force.

According to the announcement on April 25, the U.K. prime minister and technology secretary will be doling out 100 million British pounds ($124.8 million) in initial funding to support a task force that will accelerate the country’s AI readiness.

Prime Minister Rishi Sunak said that AI provides many opportunities for economic growth and advancements in healthcare and security.

“By investing in emerging technologies through our new expert taskforce, we can continue to lead the way in developing safe and trustworthy AI as part of shaping a more innovative UK economy.”

The task force is set to “ensure sovereign capabilities,” which include public services, along with fostering broad adoption of “safe and reliable foundation models.” This coincides with the UK’s commitment to becoming a science and technology superpower by 2030.

According to the announcement, the first pilots of AI usage and integration will target public services and are expected to launch in the next upcoming six months. Legislators in the U.K. have already designed an investment of 900 pounds ($1.1 billion) into computing technology.

Officials in the U.K are simultaneously pushing for “safe AI,” which means regulating the technology to “keep people safe” without limiting innovation.

Michelle Donelan, the country’s science, innovation and technology secretary, said that if “developed responsibly,” AI can transform every industry.

“This will ensure that the public and business have the trust they need to confidently adopt this technology and fully realize its benefits.”

This development comes shortly after the U.K. Treasury decided to resurrect its Asset Management Taskforce with a renewed focus on developing crypto regulation. The news included that Brian Armstrong, the CEO of Coinbase, would help advise regulators on law and taxation between banks and the fintech industry.

Magazine: Crypto regulation: Does SEC Chair Gary Gensler have the final say?

Crypto assets to become a separate category in the UK tax forms

March 17, 2023 Coin Telegraph

Coin Telegraph

The recent national budget, published by His Majesty's Treasury, announces the amendment of the self-assessment forms for crypto assets.

As Great Britain is gradually moving to its own comprehensive crypto framework, the Treasury introduces a separate category for crypto assets into the tax return forms. The particular line should appear in the tax forms in 2024-25.

On March 15, His Majesty’s Treasury of the United Kingdom published a report paper on the national budget for Spring 2023. The document announces the amendment of the self-assessment forms for crypto assets.

In the table of anticipated expenses and revenues of the national budget the crypto assets, the numbers against the crypto assets line appear only starting from the year 2025-26. That means British citizens would have to declare them for the first time in the previous tax year, 2024-25. At the moment, Treasury doesn’t provide any specific numbers of anticipated budget revenues from this tax category — the numbers in the table stand at the nominal mark of 10 million British pounds ($12 million).

The changes were welcomed by The Chartered Institute of Taxation (CIOT), the leading professional body that analyzes national tax policies. As the Deputy President of the CIOT, Gary Ashford, stated:

“Highlighting the need to declare crypto asset transactions in the tax return will help raise awareness of people’s obligations in this area.”

He, however, highlighted the need for additional measures to counter “widespread ignorance of tax payment and reporting requirements for crypto.” According to Ashford, it is law-income crypto investors who don’t possess sufficient understanding of tax reporting.

Earlier in March, the Financial Conduct Authority (FCA) reported to the Treasure that it is “midway through a quite ambitious reset” as the Financial Services and Markets bill makes its way through the Parliament. When passed, the bill would give the FCA new regulatory powers over the cryptocurrency industry.

UK Bitcoin community reacts to incoming CBDC and digital pound rollout

January 25, 2023 Coin Telegraph

Bitcoin Community

A new role, "Head of CBDC," will help the United Kingdom to "explore the case for a digital pound," although UK Bitcoiners would argue that might not be necessary.

The UK Government's economic and finance ministry, HM Treasury, is recruiting for a Head of central bank digital currency (CBDC) to lead the development of a digital pound. The work is described as "Important, complex, and cross-cutting" and will "require extensive engagement across and beyond the HM Treasury."

According to the Linkedin post, the Treasury and the Bank of England are working together through the CBDC Taskforce to explore the case for a digital pound. The role of the Head of CBDC may bring the UK government closer to its aim of rolling out a CBDC.

*HM Treasury's job posting for a CBDC Head. Source: LinkedIn*

Danny Scott, CEO of a UK-based Bitcoin (BTC) company, CoinCorner, told Cointelegraph that a CBDC could be missing the “Actual real-world use and purpose–which is what we often see.”

“For those that have been in the industry for a cycle or two, we've seen the hypes come and go, altcoins, blockchain, distributed ledger, ICOs, DeFi, NFTs. You see large companies come along and jump on the latest hype to avoid looking like they're falling behind, it falls under R&D and exploratory for most, which is perfectly understandable.”

Scott, who has been working and building in the Bitcoin space for over a decade, explained that sometimes the public could misinterpret the research and development projects in the crypto space and perhaps confuse them with useful real-world solutions.

“A CBDC (digital pound) doesn't fall far from this, many countries around the world are exploring this and trying to understand the benefits of this over the current system, fair enough, this will happen.”

Indeed the move towards a digital pound matches the trend among central banks worldwide to explore the potential of CBDCs. In Europe, the European Central Bank (ECB) has been actively studying the future of a digital euro, and several countries, including Sweden and Denmark, are also exploring their own digital currencies.

CBDCs claim to offer a number of benefits, including improved financial inclusion, reduced costs for businesses and consumers, and increased security and efficiency in the payment system.

However, El Salvador banked as much as 70% of its unbanked population with the introduction of Bitcoin as legal tender, while countries such as Nigeria, Ghana and Kenya can now receive money from around the world to a mobile phone or Bitcoin exchange account.

*Paying for coffee in El Salvador using Bitcoin. Source: Cointelegraph*

Moreover, there are potential risks to introducing a new digital currency. James Dewar, Partner at UK Bitcoin merchant solution Bridge2Bitcoin and a Director at Laser Eyes Cards, told Cointelegraph that the “Introduction of a CBDC would itself present different challenges and risks than Bitcoin,” as the CBDC requires “trust in third parties, Central Banks and Governments, to not abuse the supply of the currency.”

“This risk applies at the macro level as it does today, but more worryingly with a CBDC on the ability for a government or its agencies to monitor and censor individual spending. This is a huge risk for the rights of freedom and property ownership within our societies.”

He raises the question, “Whilst we may trust one government or another, do we as citizens trust all future governments, of whatever color, with this power?” Tony Yates, a former senior adviser to the Bank of England, has spoken out against CBDCs. Resonating Dewar's thoughts, he questioned the motivations behind the global rollouts of CBDCs, calling them “suspect.”

Dewar continued: “It is reasonable that government explore the idea properly. Overall we worry that there may be political pressure brought to the process that ignores or significantly downplays the risks to society of a CBDC.”

The “digital” aspect to money is also brought into question. The UK is increasingly a digital cash-based society: less than 15% of payments are made with physical cash according to the Bank of England, and as many as 23 million people–about a third of the UK population–did not use cash at all in 2021.

*Cointelegraph reporter Joe Hall races contactless payments, Bitcoin vs pounds sterling in Gibraltar. Source: Cointelegraph*

Scott asks of the treasury, "Don't we already have a digital pound?"

"From an end consumer perspective, the pound is mostly digital these days regardless of the mechanism used.So once they have finished their exploratory stages, I would love to see a list of the benefits and new features a CBDC will be bring to the public.”

In the meantime, Scott will “continue to focus on Bitcoin and making a global interoperable system everyone can participate in.”

Dewar shared that there could be hope for Bitcoin and the UK government: “the role description notes that the emergence of private sector money (such as Bitcoin) offers exciting opportunities for UK businesses and consumers, and we would very much agree with that at Bridge2Bitcoin.” The Bank of England CBDC, by design, will be available to Brits although no official timeline is set.

UK Government

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